In the Short-Term

1. Lending & Finance

After years of speculation that interest rates would be on the rise, consumers are now experiencing gradual increases. CRE reports that “historically, this has been a powerful signal of market expectations of an economic down cycle,” which has many asking, “is it time for investors to focus on playing defense at the end of this long cycle?” There doesn’t seem to be any immediate affects, however CRE anticipates it may slow down some deals, since transaction volume nationwide dropped 13% over the past three years.

The Wall Street Journal recently reported on past and future interest rate hikes, citing low unemployment rates and the strong economy. According to the article, the Fed plans to gradually increase until they reach neutral levels, which “will seek neither to spur nor slow growth.” Experts vary on what that rate is, but most agree it’s somewhere between 2.75- and 3-percent. WSJ writes that The Fed has already raised rates twice in 2018 and that “officials last month penciled in two more rate increases this year and three more next year,” meaning the Fed could reach “neutral” status as early as next spring.

2. Political Climate

There are two main topics that affect real estate when it comes to politics and policies—those with a direct impact and those with an indirect one. The indirect categories include things like the Tax Cuts and Jobs Act, which could potentially bolster the industry, and growing trade wars with other countries, which cause fears and stop consumer spending. Direct factors include S.2155, which “frees smaller lenders from the toughest requirements of the Dodd-Frank Act,” HVCRE, which “would exempt income-producing property” and HDMA, which “reduces the number of data fields collected by insured depository institutions.”

3. Home Prices

Affordability has been stifled by high demand amidst anemic inventory, and growing cities are feeling the pressure, as more buyers turn to traditionally affordable neighborhoods and housing options that in the past, have served first-time buyers and downsizers. CRE says that two main questions will emerge in the coming months and years, which are who is paying and how they’re doing so.

It will be interesting to see how this trend plays out in Seattle, where inventory has slowly ticked up over the past few months. As Seattle Times reported in early July, “the total number of single-family homes on the market jumped an eye-popping 43 percent in June from a year ago across King County,” with the number of homes for sale growing “three straight months on a year-over-year basis.” Only time will tell whether this will be a sustained trend or if the market will return to the same story of low inventory and growing demand when the autumn sales season begins.

4. Demographics

While in the past, real estate was driven by groups such as 25 to 34, 35 to 54, etc., real estate “now is seeing and reacting to the influence of FOUR groups: the Millennial generation, aging baby boomers, Gen X (those born between the mid-1960s and the early-1980s, which exhibit characteristics of the two large groups on either side of the age spectrum), and Gen Z (born between 1995 and 2010).”CRE says that some of the biggest impacts will be the way that these generations approach work spaces, where companies are located, and the type of homes these evolving groups desire.

5. Online Retail

As more and more consumers elect to spend their dollars in the online environment, grossing $123.7 billion in the first quarter of 2018 alone, many have called on “the death of U.S.” mail and the brick and mortar retail store. There are signs of life, however, as the service-oriented retail sector is growing and businesses such as Amazon—with their acquisition of Whole Foods—hybridize to offer physical and digital shopping experiences. In offering both options, real estate benefits as “discount retailers and high-end luxury stores” continue to “survive the onslaught” and e-commerce contributes to “a major boon for warehouse distribution properties.”

In the Long-Term

1. Infrastructure

Though it has been included on past long-term outlooks, this marks the first year that infrastructure topped the CRE’s list. As the article outlines, underinvestment in infrastructure contributes to flight risk “due to inattention to physical infrastructure and human capital infrastructure,” which directly influence economic productivity. Real estate is dependent on infrastructure—or lack thereof—which will impact existing properties and new development projects, as both will depend “upon reliable, well-maintained infrastructure” to thrive.

2. Technology

As is the case with other industries, real estate will need to adopt, or at the very least consider, new technologies such as “blockchain, artificial intelligence, autonomous vehicles, cryptocurrencies, transaction platforms that disintermediate human agents,” all of which may be categorized as “this changes everything” items. CRE says that while it is important for real estate agents and companies to consider new technology, they “ultimately must carefully choose which is most appropriate for their business, property, service, or problem/solution—not be pressure to rush toward ‘technology for technology’s sake.’”

3. Climate Change

As CRE writes, “the impact of climate change and natural disasters on real estate is perceived to be increasing over time” and it will be important for local governments and real estate developers to carefully “navigate a myriad of state and local energy and sustainability regulations.” Because there are no overarching legal policies guiding development and energy use, it will continue to be “difficult for companies to work with state and local officials in multiple locations” to handle things such as employee relocation or expanding operations and services across states.

4. Immigration

“There are economic impacts on real estate, which start with the fundamental growth dilemma facing the U.S. for the coming decade: the labor supply shortage driven by age demographics.” CRE explains that the Immigration and Naturalization Act of 1965 helped the agricultural industry grow exponentially and that a decrease in immigration could hurt both agriculture and the growing e-commerce sector as Amazon alone, for example, hired 50,000 employees “for picking, packing, and shipping jobs at its fulfillment centers” in a job fair held in August 2017.

5. Resources

Water and energy are two key resources for developers to consider, as “municipalities are increasingly enacting policies that require real estate owners to invest in storm water management systems and devices, and also create new green space.” Implementing greener features will ultimately contribute to the value of real estate, with factors such as “increased development yields . . . reduced operating costs, and improved preparedness for flooding and drought.” Other items to consider include wildfires, droughts, and air quality, and CRE anticipates that some “communities and states could experience significant population loss as homeowners, renters, companies and corporate employees settle elsewhere.”

Information was obtained from sources deemed reliable but cannot be guaranteed. Readers are encouraged to perform independent due diligence prior to relying on information contained herein. Views expressed by FutureCast Forum members are not necessarily shared by Realogics, Inc. E&OE.